Many investors want a simple set-and-forget portfolio which will provide a balance between growth and income over time. And particularly if you are just beginning to build a portfolio, exchange-traded funds (ETFs) provide an easy and less expensive means to do this.
Inside my Profitable Investing, I have a large collection of model portfolios which are offered to achieve my goal of all-weather performance with lots of income and risk-controlled growth using stocks, bonds and funds — including ETFs.
For ETFs, your portfolio should be weighted to the best sectors of the U.S. markets, with shares in specific stock sectors that are geared to provide growth and income over time. As such, the stock ETF allocation should be set at 56% of your overall portfolio. I continue to recommend a roughly equal weighing for each of the funds you choose.
This same method applies in the fixed-income sectors that are focused on corporate bonds and preferred stock, as well as the buoyant municipal bond markets. The fixed-income allocation should be set at 44% overall, including an 11% allocation to cash. And like with the stock-based funds, the individual fixed-income ETFs should be weighted evenly.
And note, the municipal bond ETFs can be bought in tax-free accounts. Some brokerages give warnings about this, but there are no restrictions to doing it. You will give up some of the tax-free income advantage, but the total return prospects for this market remain compelling.
I’ll start with the Vanguard High Dividend Yield ETF (NYSEARCA:VYM), for access to the general market with a dividend focus. VYM continues to do well year to date with a return of over 14%. Expenses are 0.6%, or just $6 annually for every $10,000 invested.
That is the baseline for the stock market.